June U.S. new-car sales seen highest in 5 years

A view of the General Motors assembly plant in Wentzville, Missouri February 7, 2012. REUTERS/Sarah Conard

DETROIT (Reuters) - The deteriorating European markets have led auto industry executives to worry about possible contagion spreading across the Atlantic, but June new-car sales in the United States are expected to hit a five-year peak for that particular month.

Auto sales, which offer an early snapshot of consumer demand, have been one of the bright spots in the U.S. economy for several months until May results came in short of expectations and raised concerns about the sector’s recovery.

Analysts and industry officials, however, said there are just too many old cars that need to be replaced, which will drive consumers into dealers’ showrooms. The average age of cars on the road is an all-time-high 11 years.

“The most interesting thing is the ongoing battle between pent-up demand and concern over financial issues,” said Karl Brauer, chief executive of research firm Total Car Score. “There is, by no means, clear sailing ahead on the financial issues, but people are getting really tired of driving their old cars.”

Economists polled by Thomson Reuters see the annual selling rate for new cars in the U.S. market in June finishing at 13.9 million vehicles. That would mark the second month in a row below the 14 million rate, but would exceed last month’s 13.7 million.

Opinions vary, however, as TrueCar.com expects a sales rate of 13.6 million, while General Motors Co (GM.N) CEO Dan Akerson said on Thursday the market was “surprisingly strong” and he saw it finishing between 14 million and 14.2 million.

J.D. Power and LMC Automotive, and Edmunds.com see sales rising 20 percent from last year to about 1.27 million new cars and trucks, while TrueCar sees an increase of 18 percent. That would be the highest level since 1.46 million were sold in 2007, just before the U.S. economy slipped into a recession that forced GM and Chrysler into bankruptcy.

Some of the projected increase will be due to a recovery by Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T) from the impact of last year’s earthquake in Japan that hurt U.S. supplies.

Major automakers including GM, Ford Motor Co (F.N) and Toyota will report June U.S. new-car sales on Tuesday.

SECOND-HALF WORRIES

The downward spiral of the European market has raised concerns, however. “I‘m a little bit worried about the second half because we see softness in Europe,” Akerson said Thursday at an event in Chicago. However, his positive forecast for June U.S. sales was based on the pent-up demand in the market.

Ford echoed Akerson’s concerns on Thursday when it warned that second-quarter losses from operations outside North America could triple the $190 million first-quarter loss, hurt mainly by weakness in Europe. The No. 2 U.S. automaker still sees an overall profit, however, as North America remains strong.

“The good news is we still have growth in the economy. It is moderate,” Ford North American chief Mark Fields said earlier in the week. “Some of the economic figures in the last six weeks are a little bit contradictory. The housing starts and permits actually were up. At the same time, we’ve seen consumer confidence come off its high earlier this year.”

Ford expects a June sales pace in the high 13 million-vehicle range, he said.

“The (annual sales rate) does appear to be slowing down from the 14.6 million level in the first quarter, which we attribute to some demand pull forward into the first quarter with the warm winter and an increasingly cautious consumer given some signs of a slowing U.S. economy,” RBC Capital Markets analyst Joseph Spak said in a research note.

Spak expects a June sales rate of 13.9 million vehicles, but said lower gasoline prices, easier access to credit and newly launched cars will bolster second-half demand. He added there are more downside risks to his industry estimate at this time.

Analysts expect sales in June to decline from May, but Kelley Blue Book said such a decrease is what normally occurs this time of year. Since 2007, the daily selling rate has dropped between 3 percent and 10 percent from May to June, putting the company’s projected 8 percent decline within that trend.

Despite the expected second straight month below a 14 million sales rate, analysts are not backing off full-year U.S. sales projections yet.

“Despite the relative slowdown in the last few weeks, the first-half sales results this year indicate a relatively healthy car industry; perhaps the brightest spot in an otherwise struggling U.S. economy,” said TrueCar analyst Jesse Toprak. “We expect second-half of 2012 to average around 14.5 million units.”

J.D. Power and LMC still expect 2012 sales of 14.5 million new cars and trucks.

“We’re seeing healthy retail sales growth as we head into the summer selling season and as automakers change over to the 2013 model-year vehicles,” said J.D. Power analyst John Humphrey. “All indicators point toward an industry that continues to get healthy.”